Qualifying Recognised Overseas Pension Schemes (QROPS) were introduced in April 2006 by the UK tax authorities. From that date it became possible to transfer a UK pension overseas providing the receiving scheme had QROPS status; in other words it complied with various rules laid down by Her Majesty’s Revenue and Customs (HMRC) to avoid abuse of the tax system:
- The receiving scheme had to be established in a country or territory which relates pension funds.
- It has to incorporate rules stipulating that at least 70% of the pension fund would be used to provide an income rather than a lump sum.
- The plan must be recognised for tax purposes in the country or territory where it is established.
- The plan must also be available to local residents; in other words it must not be a false construct just to receive UK transfers.
In return for obtaining QROPS status the local provider has an obligation to provide HMRC each year and for 10 years from the date of transfer details of any transactions giving rise to a payment to its owner.
Again, this is again to ‘police’ any transgressions of the rules. These transgressions can result in penalty tax being applied.
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Do QROPS have advantages?
· Under the current rules UK pensions only allow 25% of the accumulated fund to be paid as a tax free lump sum but under a QROPS plan it may be possible to take up to 30%.
· Until recently QROPS also enjoyed an inheritance tax advantage for British holders but this is no longer the case as the Government removed inheritance tax on pension transfers in the last budget, so this is no longer an advantage for QROPS.
What are the disadvantages of QROPS?
· Undoubtedly they are more expensive to administer than UK plans and many QROPS available through the Isle of Man and Malta can often be advised upon and implemented by financial advisers who are not suitably qualified particularly in the field of transferring Defined Benefit plans.
Recently the UK authorities have demanded that any Defined Benefit (DB) transfers must be signed off by a suitably qualified UK adviser and Trustees of DB schemes will no longer transfer to QROPS unless this has been done.
· QROPS are established under a Trust in the domicile in which they reside and it is an accepted fact that the French tax authorities do not recognise Trusts and therefore there could be a question mark over the taxation of the benefits when they are taken if you are tax resident in France.
What types of investments can be selected?
Generally speaking any recognised stock market investment, insurance fund, mutual fund, unit trust or OEICS is suitable and in certain cases commercial property can be included.
Is there a viable and less expensive alternative?
Yes! There is an alternative; a Self-Invested Personal Pension Plan (SIPP) where the plan remains in the United Kingdom but the management of the plan, the investment of the funds and the payment of the benefits all take place in France.
This is a less expensive alternative and provides exactly the same benefits as a QROP without the additional costs or the question mark over its Trust status. So if you need advice on managing your UK pension simply click the button below and a suitably qualified adviser will provide a free, no obligation assessment of your position and make the most appropriate recommendation.
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